Bhutan dares to be different in a world where success is often measured in profits and productivity. Hidden in the Eastern Himalayas and with only 38,394 square kilometers of land area, it has captured global attention with its revolutionary philosophy of Gross National Happiness (GNH), a bold metric that places the well-being of its people above mere economic output.

This is not to say that Bhutan is slack on government policies and economic output; indeed, available data from the World Bank confirms otherwise. Bhutan has experienced consistent GDP growth for almost half a century, reaching $2.92 billion in 2023. This economic success suggests a highly effective and organized governance system that ensures meaningful contributions from both workers and employers towards the nation’s sustainable development.

Whether you’re setting up shop in Thimphu or are a consultant HR professional managing a local team, doing business in Bhutan demands strict compliance with the payroll and tax obligations set by the government. These policies are intended not just to fund public services and infrastructure but to reinforce Bhutan’s core traditional values of equity, welfare, and dignity.

This guide will walk you through the essential components of employer responsibilities, employee contributions, mandatory levies, and personal income tax brackets in Bhutan. Let’s dive right in.

What is Payroll Tax in Bhutan?

While Bhutan does not impose a separate payroll tax in the conventional sense, employers and employees are required to make structured contributions toward social security, primarily through the Provident Fund and Pension schemes, alongside mandatory income tax deductions.

These deductions, collectively understood as payroll obligations, form the foundation of Bhutan’s workforce welfare system and ensure long-term financial security for employees.

National Pension and Provident Fund (NPPF)

The NPPF was established on March 30, 2000, as an autonomous agency to manage pension and provident fund schemes for civil servants, employees of state-owned corporations, and the Armed Forces.

However, this scope has widened since its inception to include the members of the private sector workforce as reviewed in the 2007 Labour and Employment Act and the 2022 Regulation of Working Conditions. The act stated that all private companies with 10 or more employees were to enroll with a provident fund scheme with authorized private organizations like Bhutan Insurance Limited. Since 2021, however, the NPPF has launched its private arm – the Private Provident Fund.

The NPPF represents a statutory contribution that National Pension and Provident Fund (NPPF) employers are to make to the government for themselves and their employees by deducting a portion of their monthly wages.

While these contributory rates differ depending on the involved sector, they are expected of citizens, permanent residents, and non-residents alike.

SectorEmployee ContributionEmployer ContributionPension Fund AllocationProvident Fund Allocation
Civil Service11%15%16%10%
Armed Forces15%15%19%11%
Private SectorMinimum 5%Minimum 5%N/A10%

For private sector employees, the provident fund is paid as a lump sum upon retirement or separation.

Admittedly, the Bhutanese government has faced challenges enforcing these mandatory payments in the private sector. There have been reports of employers deducting provident fund contributions from employees’ salaries without depositing them into PF accounts, leading to legal disputes and employee grievances.

The government has, however, tightened punitive measures. If a company is found non-compliant, the ministry issues an improvement notice, followed by penalties ranging from 90 to 360 days’ wages if compliance is not achieved within a specified period.

Personal Income Tax

Bhutan practises progressive taxation, as spearheaded by the Department of Revenue and Customs (DRC) – the higher you earn, the higher your tax.
Alongside the statutory PF contributions, these rates are also withheld by employers from employees’ monthly wages.

Here’s a breakdown of the rates:

Annual Taxable Income (Nu.) Tax Rate
Up to 300,000 0%
300,001 – 400,000 10%
400,001 – 650,000 15%
650,001 – 1,000,000 20%
1,000,001 – 1,500,000 25%
Above 1,500,000 30%

It is important to note that there’s an additional 10% surcharge on income exceeding Nu 1,000,000.

For example, if your annual taxable income is Nu. 1,600,000. Total PIT before surcharge is:

BracketTax RateTax Amount
First Nu. 300,0000%Nu. 0
Next Nu. 100,00010%Nu. 10,000
Next Nu. 250,00015%Nu. 37,500
Next Nu. 350,00020%Nu. 70,000
Next Nu. 500,00025%Nu. 125,000
Remaining Nu. 100,00030%Nu. 30,000
Computation Step Amount (Nu.)
Total tax from applicable brackets 272,500
Surcharge (10% applied as taxable income exceeds Nu. 1,000,000) 27,250
Final Tax Payable 299,750

Our payroll calculator makes everything easier. Use it here.

According to the DRC, you’re required to pay PIT if you are a:

  • Bhutanese citizen
  • Permanent resident
  • A person earning a gross income exceeding Nu. 300,000 per annum in Bhutan from salary income, rental income, dividend income, or income from other sources

Employer and Employee Responsibilities

Bhutanese employers with ten or more staff must register their company and employees with an approved Provident Fund before their initial contribution. Monthly, they must deduct 5% of each employee’s basic salary as their contribution and add an equal 5% as the employer’s contribution, totaling 10%. These combined funds must be submitted to the Provident Fund authority by the 15th of the following month to avoid late payment penalties.

Employers are also required to keep precise records of all contributions and deductions and provide employees with payment confirmation upon request. They must adhere to inspections and audits by the Ministry of Labour and Human Resources and ensure monthly or quarterly reports detailing contributions and payments are submitted within the deadlines set by the Provident Fund authorities.

Employees should check that the correct 5% is deducted monthly from their basic pay and that their employer is contributing the matching amount. They need to provide accurate personal information for registration and regularly review their Provident Fund statements to confirm proper deposit of contributions. If deductions are made but not sent to the Provident Fund, employees can file complaints with the Labour Protection Division or the relevant Provident Fund authority.

Individual taxpayers are also required to file their personal income tax returns annually by February 28th (or 29th in a leap year) to avoid penalties and comply with Bhutan’s tax regulations.

Breakdown of Employer Contributions in Bhutan

  • Provident Fund (PF) Contribution: Employers contribute 5% of the employee’s basic salary to the PF scheme, matching the employee’s own 5% contribution.
  • Corporate Income Tax (CIT) : Corporate Income Tax is a tax levied on the net profits of companies operating under the Companies Act of Bhutan. The standard CIT rate is 30% on taxable profits for most businesses, although – as we will soon see – some sectors may have different rates or incentives. This tax is separate from payroll contributions and is not deducted from employee salaries.

    Companies must file their annual corporate tax returns with the DRC and pay the tax due within the prescribed deadlines, typically based on their financial year-end. These taxes must be filed annually by March 31st.
  • Business Income Tax (BIT): BIT is a non-corporate business tax also levied at 30% on net profit. It is payable by all unincorporated business entities holding a trade license or registration certificate issued by the Ministry of Economic Affairs (MoEA).
  • Other Benefits (if applicable): Beyond legally required payroll taxes, employers might also offer extra employee benefits like gratuity or insurance based on employment contracts or collective bargaining agreements. These additional benefits differ between companies and are not standard payroll deductions.

Industry-Specific Tax Rates

While the standard CIT rate in Bhutan is flat across industries, the government provides targeted tax exemptions and holidays to incentivize growth in strategic areas like hydropower, IT, manufacturing, and small-scale enterprises.

Bhutan offers several tax incentives to promote specific sectors and activities.

Hydropower companies may receive tax holidays and concessions due to their importance to Bhutan’s economy. Manufacturing and IT service providers enjoy income tax exemptions on export earnings in convertible currency for their first ten years of operation. Cottage and Small Industries (CSIs), particularly those in remote or underdeveloped regions, may be eligible for full tax exemptions to support local development.

Significant tax relief is available for export businesses. Companies exporting at least 70% of their goods or services may be exempt from corporate income tax on those export earnings, aiming to boost Bhutan’s global trade and foreign exchange.

Aside from the March 31st CIT filing following the end of the income year, companies are required to make an advance tax payment by August 31st, based on mid-year financials or 50% of the previous year’s tax payment.

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